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The Effects of Prize Spread and Noise in Elimination Tournaments: A Natural Field Experiment

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  • Josse Delfgaauw
  • Robert Dur
  • Arjan Non
  • Willem Verbeke

Abstract

We conduct a natural field experiment in a retail chain to test predictions of tournament theory regarding prize spread and noise. A random subset of the 208 stores participates in two-stage elimination tournaments. Tournaments differ in the distribution of prize money across winners of the first and second rounds of the tournament. As predicted, we find that a more convex prize spread increases second-round performance at the expense of first-round performance, although the magnitude of these effects is small. Moreover, the treatment effect is larger for stores with more stable past performance.

Suggested Citation

  • Josse Delfgaauw & Robert Dur & Arjan Non & Willem Verbeke, 2015. "The Effects of Prize Spread and Noise in Elimination Tournaments: A Natural Field Experiment," Journal of Labor Economics, University of Chicago Press, vol. 33(3), pages 521-569.
  • Handle: RePEc:ucp:jlabec:doi:10.1086/679670
    DOI: 10.1086/679670
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    More about this item

    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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